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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#691

Post by abigail95 »

riazrizvi wrote: post #516
DiscourseFan wrote: post #473

Earlier quoted context omitted.

I don't get it. I'm no expert in finance but even I knew the fed wasn't going to stop raising interest rates because I had the common sense to know the fed would fail to trigger a recession by doing so.

When I set my ‘Hindsight Goggles’ to 100, I too saw that the Fed would keep raising interest after the initial rounds, because unemployment would stay low despite massive layoffs, somehow, and that prices would keep rising. And I am an expert in finance.

I thought layoffs were way below trend? What layoffs?

Re: FDIC Takes over Silicon Valley Bank

#692

Post by antoniuschan99 »

SVB is a commercial bank for tech/biotech, venture & private equity firms.

FDIC insurance of 250k is a months salary for FDIC takeover does not necessarily mean that SVB will cease operations permanently. I haven't yet read of depositors not being able to withdraw vs when FTX was collapsing. With FDIC taking over, seems they're going to liquidate more assets to pay off creditors and depositors. Or sell the bank to another financial institution. SVB is Top 20.

Washington Mutual was also a top consumer bank that FDIC seized and was sold to JP Morgan. JP Morgan ended up assuming responsibility of the depositors.

Re: FDIC Takes over Silicon Valley Bank

#693

Post by Eumenes »

somenameforme wrote: post #367

An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…

The team making these poor choices at SVB should be criminally charged ... The tax payer shouldn't have to bail out banks.

Re: FDIC Takes over Silicon Valley Bank

#694

Post by highwaylights »

kypro wrote: post #671
somenameforme wrote: post #367

An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…

> - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield. Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dolla…

Nah, the bank is responsible for their decisions.

They bought $80b of fixed-rate bonds at historically and artificially low interest rates in a time of massive QE. Even based on the information available at the time, this is not a surprising outcome at all.

Re: FDIC Takes over Silicon Valley Bank

#695

Post by [deleted] »

kypro wrote: post #671
somenameforme wrote: post #367

An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…

> - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield. Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dolla…

[deleted]

Re: FDIC Takes over Silicon Valley Bank

#696

Post by dmoy »

gnopgnip wrote: post #456
FormerBandmate wrote: post #66

Earlier quoted context omitted.

This case is unique because of the sheer volume of non-FDIC insured deposits. Substantial risk of depositors not being made whole for a while, they’ll probably get all their money but it will still be bad

Have there been any cases in modern times, in the last 25 year or so where depositors lost money because they had more than the fdic covered ?

Yes it happens literally every year. It's not usually a huge %, like it might end up being in this case.

Re: FDIC Takes over Silicon Valley Bank

#697

Post by [deleted] »

kypro wrote: post #671
somenameforme wrote: post #367

An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…

> - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield. Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dolla…

[deleted]

Re: FDIC Takes over Silicon Valley Bank

#698

Post by Randalthorro »

alfalfasprout wrote: post #685
opportune wrote: post #648

Earlier quoted context omitted.

This, these bonds/mbs are liquid instruments, they just lost value at market prices. When I make a deposit in a bank I am not purchasing a CD - I expect full liquidity. If the bank invested my deposit in something that lost money but should be worth my deposit amount in X years that is purely the bank’s fault, not my fault.

Here's the more mindblowing thing... not only are those MBS and treasuries completely liquid... they're correlated to interest rates! The fed has been forecasting interest rate hikes every single quarter. Every. Single. Quarter. They had plenty of time to roll over these investments at a slight loss. Heck, even reducing their exposure 50% would have been enough to not end up in this mess. Instead, they waited until i…

Reserve requirements should be based on current market price or at least last quarter or last year, not purchase price.

They would have had to recapitalize way earlier if that was the case.

Re: FDIC Takes over Silicon Valley Bank

#699

Post by javajosh »

joosters wrote: post #480
duxup wrote: post #435

Earlier quoted context omitted.

I have some family who (with some other partners) founded a small community bank that has grown over the years. They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc). The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who wer…

At first glance, bank balance sheets are unintuitive and feel 'the wrong way round'. When someone deposits $1m at a bank, the bank doesn't have $1m more assets, it has $1m more liabilities. (Yes, this is a gross over-simplification)

Not an expert, but was having some thoughts.

Let debt be a graph where the nodes are people (with ledgers) and the edges are all of the form "alice rents $x from bob for y% APR". Actions that resolve/relax graph are payments of the form "alice pays bob $z", that lead to all balances being 0. Let the edges decay to null when balance is 0, such that a 'resolved graph' is simply a list of nodes with no edges, meaning 'no one is in debt to anyone'.

From this we can infer:

   1. There is only one logical 'debt graph' in the world since they can (and do) all join.
   2. The people running the graph do not want the graph to die, ever.
   3. The profit of the debt business is proportional to transactions over time,
      which is proportional to edges of the debt graph.
   4. They want to (add, prevent from decay) as many edges as possible.
I somehow feel like I've caught my first, hazy glimpse of something important.

Re: FDIC Takes over Silicon Valley Bank

#700

Post by abfan1127 »

highwaylights wrote: post #694
kypro wrote: post #671

Earlier quoted context omitted.

> - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield. Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dolla…

Nah, the bank is responsible for their decisions. They bought $80b of fixed-rate bonds at historically and artificially low interest rates in a time of massive QE. Even based on the information available at the time, this is not a surprising outcome at all .

that doesn't excuse the Fed's behaviors.
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